Can the Government disallow the cost of contractor-acquired property (CAP) known to be discrepant at the time of delivery if the contractor failed to return the discrepant property to the vendor (Cost-type contracts)? Is the cost of CAP known to be discrepant allocable or allowable?
Yes, the Government can disallow the cost of Contractor Acquired Property (CAP) if it is excess to the contract needs and no prior authorization was provided by the Contracting Officer to allow the costs of the discrepant property due to special circumstances. The contractor is required to have a procedure for the identification and processing of discrepant items in accordance with FAR 52.245-1(f)(1)(ii). The contractor can only charge the Government for items that were used in the performance of the contract, unless authorization is provided by the Contracting Officer. Even if the Contractor did not follow the FAR clause above by not returning the items to the vendor, a credit for the items to the Government is still required for the cost of the unreturned items in accordance with FAR 31.205-26 (Material Costs).
(b) The contractor shall—
(1) Adjust the costs of material for income and other credits, including available trade discounts, refunds, rebates, allowances, and cash discounts, and credits for scrap, salvage, and material returned to vendors; and
(2) Credit such income and other credits either directly to the cost of the material or allocate such income and other credits as a credit to indirect costs.
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